Pound Snaps 3-Day Drop Versus Dollar on Bets Economy Will Grow

Oct. 10 (Bloomberg) -- The pound snapped a three-day
decline against the dollar, rising from the lowest level in four
weeks, as bets the U.K. economy returned to growth in the last
quarter boosted demand British assets.

Sterling was little changed versus the euro as Prime
Minister David Cameron said that Britain faces a choice between
increasing its productivity or falling behind other countries.
The U.K. economy expanded at its fastest pace in five years in
the third quarter, the National Institute of Economic and Social
Research said yesterday. Gilts fell after Bank of England
Governor Mervyn King said yesterday inflation targeting should
remain at the heart of monetary policy.

“The U.K. looks in slightly better shape than the euro
zone,” said Jeremy Stretch, head of foreign-exchange strategy
at Canadian Imperial Bank of Commerce in London. “The Niesr
numbers yesterday suggest fairly solid growth in the third
quarter, which has provided some interest” in the pound, he
said.

The U.K. currency gained less than 0.1 percent to $1.6013
as of 4:39 p.m. London time, after dropping to $1.5977, matching
the lowest since Sept. 10. The pound traded at 80.48 pence per
euro, after reaching 81 pence yesterday, the weakest level since
Sept. 17.

Fastest Expansion

U.K. gross domestic product rose 0.8 percent, compared with
a revised 0.1 percent in the quarter through August, Niesr,
whose clients include the Bank of England, said. That’s the
fastest expansion for a calendar quarter since the third quarter
of 2007.

The U.K. economy is in its first double-dip recession since
the 1970s, and has contracted for the past three quarters
through June, according to data from the Office for National
Statistics. The ONS will announce the third-quarter figure on
Oct. 25.

Cameron focused the keynote address today to his
Conservative Party’s annual conference on attempts to rebalance
the economy away from a reliance on financial services and the
public sector, pushing private-sector growth to emerge from a
recession. He praised “doers” -- young, aspirational workers
who want their own house or car.

“Unless we act, unless we take difficult, painful
decisions, unless we show determination and imagination, Britain
may not be in the future what it has been in the past,” the
prime minister told activists in Birmingham, central England.
“Because the truth is we are in a global race today, and that
means an hour of reckoning for countries like ours.”

Gilts Fall

The pound has strengthened 0.5 percent in the past six
months, according to Bloomberg Correlation-Weighted Indexes,
which track 10 developed-market currencies. The euro fell 2.2
percent and the dollar weakened 0.5 percent.

The 10-year gilt yield rose four basis points, or 0.04
percentage point, to 1.77 percent. The 1.75 percent bond due
September 2022 fell 0.355, or 3.55 pounds per 1,000-pound face
amount, to 99.855.

“The case for price stability is as strong today as it was
20 years ago,” King said at the London School of Economics
yesterday. While there are circumstances where it may be
“justified to aim off” the central bank’s inflation target of
2 percent for a while, he said this wasn’t a call for a change
to the bank’s remit.

Gilts returned 3.1 percent this year through yesterday,
according to indexes compiled by Bloomberg and the European
Federation of Financial Analysts Societies. German bonds also
gained 3.1 percent and U.S. Treasuries rose 1.9 percent.